FTG Blog - This Trillion-Dollar Investors' Group Is Challenging Australia's All-Male Boardrooms

This Trillion-Dollar Investors’ Group Is Challenging Australia’s All-Male Boardrooms

All-male boards take note: your biggest investors have run out of patience. The Australian Council of Superannuation Investors — whose members have over A$1.5 trillion ($1.1 trillion) of funds under management –- have pledged to vote down boards that aren’t making sufficient progress on gender diversity.

“Our assessment is that engagement has failed,’’ ACSI Chief Executive Officer Louise Davidson said by telephone. “We’ve spent a lot of time and provided lots of opportunities for companies to really get their act together. That has not happened. So therefore we fall back to the next lever we’ve got, which is to start voting.’’

Institutional investors globally are increasingly concerned that too many firms are dragging their heels in appointing women — despite the body of evidence that backs diversity. Companies with strong female leadership made an annual return on equity of 10.1 percent in 2015 versus 7.4 percent for those without, MSCI research shows. A 2016 Credit Suisse Group AG survey of over 3,000 firms found more diverse boards achieved superior stock performance.

“Investors holding companies to account for their progress on gender diversity in the boardroom will have a massive impact,” said Allyson Zimmermann, Zurich-based executive director at Catalyst Europe, a global organization focused on workplace inclusion. “We’re seeing that shareholders and investors are increasingly focused on the risk of not having a gender diverse board.”

30% Target

In Australia — as with other countries including the U.S. and the U.K. — the pace of change has slowed. While women hold 25 percent of board positions, up from 8.3 percent in 2009, three males have been appointed for every female so far this year, according to the 30% Club. The group aims to reach its 30 percent target next year.

Patricia Cross, head of the Australian chapter of the 30% Club, is “deeply concerned” by the decreased appointment rate: “I think it’s time for these beneficial owners, what I’d call the ‘real’ owners, to begin to flex their muscle in the diversity agenda,” she said by email.

ACSI is taking up that call. Come this annual general meeting season, the superannuation group will start recommending its members vote against the reelection of incumbent directors –- starting with the chairman –- of ASX 200 companies which still have no women on their boards.

While ACSI members’ ownership of ASX 200 companies isn’t sufficient on its own to unseat a director, its enough to send a “very strong” message, said Davidson. “Hopefully it will set some precedents.’’

‘Fearless Girl’

The action echoes similar moves in the U.S., where State Street Corp. in March said it would begin voting against boards that are not taking “concrete steps’’ to improve gender diversity. The Boston-based fund manager also erected the statue of a “fearless girl” staring down Wall Street’s famous charging bull to draw attention to the lack of corporate diversity.

The benefits of female directors are clear. Financial services companies that support disclosure and best-in-class gender equality practices gained 6.7 percent year to date, as measured by the Bloomberg Financial Services Gender-Equality Index. The benchmark, which tracked the performance of companies such as Citigroup Inc., BNP Paribas SA and JPMorgan Chase & Co., more than quadruples the 1.3 percent posted by companies in the S&P 500 Financials Index in the same period.

Dean Paatsch, co-founder of proxy voting advisory service Ownership Matters, said the initiative was already having an impact by shedding light on the appointment process and making firms explain male-only boards. “It’s got some grunt behind it,’’ he said.

There are currently 12 ASX 200 companies that would be potential targets for ACSI, including Evolution Mining Ltd. and Resolute Mining Ltd.

Resolute, with gold operations in Australia and Africa, said in November it’s seeking to appoint new directors and has begun a process to find a new chairman.

The company “will make those appointments on merit, and part of assessing merit is recognizing the value that diversity in all senses brings to the board table,” Chief Executive Officer John Welborn said by phone from Perth. “It’s entirely appropriate for ACSI to not only get behind a subject like gender diversity, but to make it clear that they are serious and intend to act on it.”

Evolution’s Executive Chairman Jake Klein said by email that “in many ways, we already have a diverse board but do recognize the need to add gender diversity. A process to do that has started and we expect to appoint a new non-executive director later this year.”